Spatial spillover effects of fiscal decentralization on governance and public administration quality

ABSTRACT

This study examines how fiscal decentralization affects the quality of governance and public administration. Using a balanced panel dataset of 63 provinces in Vietnam over the 2011–18 period and employing the spatial Durbin model, we find that governance and public administration quality develop gradually, leading to spatial spillovers across provinces. Importantly, revenue decentralization exerts a negative spatial effect on participation, transparency, accountability and control of corruption, but exhibits a positive spatial effect on public administrative procedures across regions. By contrast, fiscal transfers improve transparency, accountability and control of corruption. That is, fiscal decentralization drives local governments in ‘a race to the bottom’ when they address budget shortfall pressures.

KEYWORDS:

• fiscal decentralization
• local governance
• public administration
• spatial spillovers
• regional effect

JEL:

• E62
• H73
• H83

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Fiscal decentralization is a broad definition, but in this study it can be understood in terms of fiscal autonomy. The authors thank the anonymous reviewer for this suggestion.

2. A higher percentage implies a high dynamic of proactive and creative provincial leadership (for more details, see https://pcivietnam.vn/en/about/pci-methodology.html).

3. See A1 in the Appendix in the supplemental data online for the list of provinces.

4. The General Statistical Office of Vietnam assisted in collecting these data.

5. See A3 in the Appendix in the supplemental data online for details on the PAPI reports.

Additional information

Funding

This work was supported by the University of Economics Ho Chi Minh City [grant number 01].